Why Was Construction Spending So Weak in May?

Some sectors of the economy are apparently still recovering from the impact of the Polar Vortex that brought the coldest winter in four years to U.S. Even as the economy is set to bounce back to a more normal growth trajectory in the second-quarter, spending on construction activities, for example, has shown only a cautious increase.

Construction spending in May advanced a paltry 0.1 percent to $956.1 billion, according to data released by the Census Bureau. This was in spite of healthy month-on-month rise in spending on non-residential and public construction. Spending on non-residential construction rose 1.1 percent in May to $328 billion and total public construction spending was up 1 percent to $273.3 billion.

The major culprit for the drag in the headline number has been reduced spending on home building, which contracted 1.5 percent to $355 billion in May on a seasonally adjusted basis. Spending on new single family homes were down 1.4 percent to $187.5 billion from $190.1 billion in May.

It is unlikely that we will see a rise in such spending unless demand in the housing market picks up. Overall weakness in the economy, higher mortgage rates, rising home prices, and relative weakness in the job markets have kept people away from buying homes. The median price of existing home rose 11.5 percent last year.